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When cable giants Comcast and Charter Communications unveiled a joint venture that aims “to develop and offer a next-generation streaming platform on a variety of branded 4K streaming devices and smart TVs” on April 27, the deal attracted attention across Wall Street and beyond.
The goal is to build on Comcast’s Flex streaming product to offer consumers a platform to access multiple streaming apps, and in the process take aim at rivals like Roku. Flex is a streaming device that Comcast offers internet-only subscribers free of charge to allow them to stream on-demand TV shows and movies, as well as some live content. Importantly, it allows users more than 250 apps, including the likes of Netflix, Amazon Prime Video, Hulu, Disney+, HBO Max, Paramount+, Discovery+ and “tens of thousands of free choices from Peacock, Xumo, Pluto, Tubi and more,” according to Comcast’s website.
The new venture also promises to offer app developers, streamers, retailers and hardware manufacturers “the opportunity to reach customers in major markets across the country with the platform,” the companies said.
But how big a streaming play is the new venture? And whose business could it impact?
Wall Street analysts and experts surveyed by The Hollywood Reporter say the streaming venture gives the cable giants a nationwide play, which the traditional cable infrastructure restricted to regions doesn’t provide, focused on the aggregation of streaming services for broadband-only subscribers. It is also designed to strengthen their broadband businesses, which are their core operations these days but have seen slowing growth as of late, by ensuring service continuity and boosting stickiness.
But the venture is also seen as taking on streaming hardware players, such as Roku, Amazon, Alphabet/Google, Apple and others. One expert even describes it as a possible “Roku killer,” although Roku management is confident about its position and outlook.
For Comcast’s NBCUniversal, the venture is also a way to broaden the reach of streaming service Peacock, while there are also other expected benefits for both partners, including potential advertising revenue upside and spectrum savings.
Comcast, led by chairman and CEO Brian Roberts, will license its aggregated streaming platform Flex and hardware to the joint venture, plus contribute free, advertising-supported streaming service Xumo, which it acquired in 2020, and the XClass TV retail business, its line of affordable smart TVs with an integrated interface and voice remote. Charter will make an initial financial contribution of $900 million to the venture, funded over multiple years.
Here is a closer look at the impact the venture could have on the partners and rivals.
It’s a national bet to serve more broadband-only customers with a streaming aggregation product.
“One of the great things about our industry over the last several decades, is how we keep reinventing the businesses we are in,” Comcast chairman and CEO Brian Roberts said on the company’s first-quarter earnings conference call Thursday. “And it is pretty important, I think, to continue to find new growth avenues. And so I look at our innovation that we have been doing at Comcast … to have the reach and to have continued hope for new revenue sources in the years ahead. These are the kinds of steps you have to make now to make those dividends down the road.”
Amid increasing challenges in recent years for their traditional pay TV services offered as a bundle of channels due to cord-cutting and cord-shaving, Comcast, Charter and their peers have focused on broadband services as their core business and looked at video services in new ways. One growing focus is on positioning oneself as a broadband provider, distributing, curating and effectively aggregating streaming video and audio services. Some experts have even predicted the emergence, over time, of streaming bundles, a business that cable giants know very well from their pay TV bundles.
Charter chairman and CEO Tom Rutledge referenced aggregation when highlighting in the Comcast venture announcement that the partnership would be “providing a more streamlined and aggregated experience for the customer.”
Ian Greenblatt, managing director of TMT (technology, media and telecom) intelligence at J.D. Power, tells THR though that one thing is unclear at this stage. “The question is, will this have the support of other streamers? Will industry leaders like HBO Max, Disney+ and Netflix want to remain a part of the current search/recommend/discover/fulfill experience that existing technology like the (Comcast) X1 platform offers cable viewers or will they stand apart from this meta-aggregator of aggregators? That’s where industry eyes will be in the months and years ahead.”
Comcast’s Flex service, which the company launched in 2017 and previously said was in around 4 million households, is widely seen as having more growth upside, though. For example, Charter on Friday reported ending March with 30.3 million total broadband customers and more than 15.7 million total pay TV subscribers. That means it has about 14.6 million broadband-only users. Comcast ended the first quarter with more than 29.8 million residential broadband subscribers (or more than 32.1 million when adding in business customers) and 17 million video users, making for 12.8 million broadband-only residential customers.
The Charter joint venture is “a testament to what Flex has become already and clearly, it is a testament to the strength of Flex,” Bruce Leichtman, president and principal analyst at Leichtman Research Group, tells THR. “And it provides continuity, not just in Comcast territories, but extended virtually throughout the country. Combined, Comcast and Charter have around 62 million broadband subscribers and 115 million passings [meaning homes they can provide services to]. And then you include Cox [which already uses Flex] and you have 67 million subscribers and 125 million passings.”
Beyond the pure market opportunity, Leichtman repeatedly emphasizes the “continuity” this ensures. “What does that mean? It means that if somebody moves from Boston to Orlando, before, it would have meant a completely different user relationship. Now, hypothetically, it means continuity, because they would be moving from a Comcast area to a Charter Spectrum area. Now, if you bought that XClass TV from Walmart, that will still work in Orlando. If you have got the Flex box with your broadband service in Boston, it will now work in Orlando. It is that continuity that a cable subscriber didn’t necessarily have unless they moved from a Comcast market to a Comcast market. And that is always a positive for a consumer as change is a tough thing.”
Comcast’s Roberts highlighted that this also opens up U.S.-wide opportunity for technology and other partners. With Charter “bringing terrific markets that we don’t operate in,” which is key, because “people who might want to take advantage of our platform … whether that is a hardware company, a software company or some new creation, they are going to want national scale. … Being able to enable people’s businesses to ride on those platforms and create value for our shareholders and Charter shareholders, that is the big picture.”
Charter’s Rutledge also highlighted “money drivers” on the company’s first-quarter earnings call Friday, explaining: “The opportunity is to create advertising revenue and to create transaction revenue on the product. … That is the opportunity of the platform from a monetization perspective.” He didn’t give more details on the revenue potential.
It could be a “broadband churn reducer.”
One key focus for Comcast and Charter is making sure they can keep growing, but also retain broadband subscribers.
“They also see it as a broadband churn reducer,” explains MoffettNathanson analyst Craig Moffett. “Comcast gives the boxes away free to broadband-only subscribers, and it’s reasonable to assume that Charter will do the same.”
Morgan Stanley’s Benjamin Swinburne described the broadband space this way after Comcast’s latest earnings report: “We continue to see Comcast as the top pick in an admittedly challenging cable/satellite group, as competition rises and broadband net adds slow.” Given the company’s proactive management in this environment, he predicts “a stable outlook for broadband average revenue per user, but a lowered net adds outlook.”
Leichtman adds that NBCUniversal’s streamer will play a key role in helping the Charter joint venture make broadband service stickier. “Basically, Peacock has added value,” he explains. “And the whole idea of this is to add value, in many ways, to the broadband subscription. … And that is, I think, what the joint venture is really about for both of those companies. It is adding value, and adding value means adding glue to that broadband subscription.”
Peacock will get expanded reach.
With Comcast’s NBCUniversal operating the Peacock streaming service, much focus has also been on what the Charter venture means for it.
Leichtman, for example, sees “benefits” for Peacock from the venture in this regard, because it “will be on the Flex devices, so it extends that reach of Peacock.” The streamer ended March with more than 13 million paid subs and 28 million monthly active accounts in the U.S.
Meanwhile, Moffett in a report wondered how the joint venture fits into current streaming concerns on Wall Street after Netflix’s first-quarter subscriber drop, especially given that NBCUniversal a few months ago promised increased spending on Peacock, which will delay its break-even. The Charter joint venture deal was “obviously planned before the Netflix blow-up,” the analyst noted. “But it fits this narrative. While not exactly small — Charter’s $900 million cash contribution over the next few years is real money — it is still closer to a ‘go small and stay home’ than it is to a ‘go big or go home’ initiative.”
That could also provide comfort for Comcast investors worried about potential deal ambitions in the future. “What of the much discussed fear that Comcast will try to buy Warner Bros. Discovery in a few years?” Moffett asked. “Would even Comcast want that anymore? Is that still as big a risk? The big takeaway from the Netflix fizzle is that maybe, just maybe, streaming isn’t all that special a business after all. That might seem like bad news for Comcast, but truth be told, no one was giving them any credit for their streaming businesses [Peacock and Flex] anyway. So if it reduces the risk that Comcast doubles down on streaming, or on media, we’ll take the Netflix fizzle to be … good news.”
A threat to Roku and Vizio?
Some companies, such as streaming video player Roku and TV set, data and advertising firm Vizio, are seen as potentially facing headwinds from the new venture of the cable giants.
“First and foremost, it’s a Roku replacement box, and it will compete for all the same revenue streams, starting primarily with advertising,” Moffett says.
“We view the joint venture announcement as a negative for Roku and Vizio and suspect the joint venture to gain some traction given Comcast’s/Charter’s long history as tech distributors of video content,” Wells Fargo analyst Steve Cahall wrote in a report.
Greenblatt also mentioned Roku, telling THR: “This may end up being a Roku-killer. It offers a great way to let consumers cord-shave and to keep the interface they prefer, while also allowing for the monetization of another platform’s ad inventory and the resulting data.”
And Leichtman explains: “Really what it does for that subscriber, it makes it so they don’t necessarily need another streaming device, they don’t necessarily need the Roku, or the [Amazon] Fire Stick or what have you. So that is the one that potentially has the most to lose.”
Roku founder, chairman and CEO Anthony Wood has said he is less concerned. “If you just think about competition for a second, we have got over 60 million active accounts and growing fast,” he said on the company’s earnings call Thursday. “We are the number one TV selling operating system in the United States. A few years ago, Roku TVs didn’t even exist. Now we are the number one selling TV OS in the country. And our Roku TV program gained market share sequentially, quarter-over-quarter, in the latest quarter.”
The Roku CEO’s conclusion: “We have been competing effectively against big, strong companies for years. We compete with Google, compete with Amazon and we compete effectively. And the reason we win in these markets is because we built the only purpose-built operating system for TV. We are incredibly focused on streaming. It is all we do. And we have got a great team. And that A team comes to work every day to build the best streaming products in the business.”
Flex for Charter and spectrum savings.
Meanwhile, Charter is expected to see additional technology benefits from the joint venture deal.
“Charter may also eventually adopt the Flex box as their primary set-top box equipment, and in the process shift to all-internet protocol [IP], app-based delivery of video even for their traditional cable TV subscribers,” Moffett says. “That would free up a great deal of capacity for faster broadband speeds.”
Rutledge told Friday’s earnings call as much. “I expect that … spectrum will be recaptured that is currently used over time. And there are various ways of compressing that spectrum, as you market your way into the IP space,” he said. “And that that capacity that is being realized will be available to increase broadband speeds and/or handle broadband capacity that is required as a result of the use of overall data.”
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